Intelsat plans OneWeb merger, dependent on bond exchange; eyes drop to 6.6 times leverage

By Paul Deckelman

New York, Feb. 28 – Luxembourg-based communications satellite operator Intelsat SA on Tuesday formally announced conditional plans to merge with industry peer WorldVu Satellites Ltd., which operates a rapidly expanding network of low-earth orbit satellites under the OneWeb LLC brand.

The combined company will receive a $1.7 billion investment from Japanese technology powerhouse SoftBank Group Corp., which currently owns 43% of OneWeb.

The combination is conditioned upon, among other things, the successful completion of a complex planned bond exchange (see related story elsewhere in this issue) that ultimately envisions replacing the roughly $14 billion in outstanding bonds of Intelsat subsidiaries Intelsat Jackson Holdings SA, Intelsat (Luxembourg) SA and Intelsat Connect Finance SA on a straight-up, par-value basis with new exchange notes notes carrying the same coupons, tenors and general terms as the existing notes, which will be issued by the respective three subsidiaries. Those offers are expected to be launched sometime in March and close sometime in the second quarter.

Then, upon the closing of the merger with WorldVu/OneWeb, which is expected to occur sometime in the third quarter, the Intelsat Jackson exchange notes will be mandatorily exchanged for a combination of cash and new “Final Jax Notes” with a total exchange value of less than the par value of the Jackson exchange notes, while the Intelsat Luxembourg and Intelsat Connect exchange notes will be mandatorily exchanged for a combination of cash and new Intelsat common shares, also having total exchange values of less than the par value of the Lux and Connect exchange notes.

The aggregate cash to be paid to the bondholders in the exchange offers upon the mandatory exchange will be about $1.7 billion.

The exchange requires the tender of a minimum of 85% of the principal amount of each series of notes.

Intelsat’s chief executive officer, Stephen Spengler, told analysts on a conference call following the release of the company’s financial results for the 2016 fiscal fourth quarter and full year ended Dec. 31, on which the planned merger, SoftBank investment and the bond exchange were also discussed, that one of the reasons Intelsat is entering into the these transactions is that “even though we’ve been able to fund our next generation Intelsat Epic fleet [of satellites], our balance sheet gives us less flexibility as compared to our peers. This is especially true in pursuing strategic transactions in a rapidly evolving sector.”

In contrast, once the merger of the two companies takes place, following the completion of the aforementioned bond exchange offers and with SoftBank kicking in its big equity contribution to the combined entity, Spengler said that “the transaction will result in a company with an enhanced capital structure. The exchange offers, and proceeds of the SoftBank investment, are expected to reduce Intelsat’s debt by up to $3.6 billion, assuming the minimum participation in the exchange offers is received.”

He also said that it will reduce Intelsat’s leverage ratio of net debt as a multiple of adjusted EBITDA to 6.6 times on a pro forma basis – well down from 8.8 times currently.

“This will provide us with flexibility to be more aggressive in our pursuit of new technologies that allow for better economics and simplified access,” he said

During the question-and-answer portion of the conference call during which Spengler was joined by Intelsat executive vice president and chief financial officer Jacques D. Kerrest and OneWeb founder and executive chairman Gregory Wyler, an analyst wanted to know if any of the existing bondholders had committed to support the debt exchange – and noted that ultimately the debtholders would “take a haircut” by receiving less than the par value of their bonds.

Kerrest declined to make any comment on the substance of the negotiations between Intelsat, OneWeb and Softbank aimed at producing “a desired capital structure.”

Spengler added that “when we look at this transaction, we see it as benefitting all of our stakeholders in the company.”

He said that “if we are successful in the next 90 days in the exchange transactions that we are about to launch, we will have a financially stronger company. We will have the improved capital structure. We will be able to leverage the synergies of this partnership. And most importantly, we’ll be able to accelerate our strategies into new growth opportunities for the future. And so we believe that's pretty compelling for all of our stakeholders – this acceleration that's available to our business with this transaction.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.